Ecommerce is currently an expanding sector around the world. Increases in computer literacy, high speed internet availability and mobile penetration make the UAE a lucrative ecommerce business ground. In this paper, we consider major ecommerce expansion strategies for those aspiring to expand their business to UAE and related tax and other problems that a prospective entrepreneur may face.
The expansion to UAE have three options:
- Establish a company or permanent establishment in UAE
This is a capital heavy strategy and is feasible if (1) the sales volume expected is high (2) product are of such nature that require support services (company can still only have a representative support office only) (3) the business model is B2B.
UAE has many freezones which facilitate warehousing, bank account opening is considered difficult for new companies, taxes apply at 9% depending on product and business model. If we are supply to natural persons than free zone will not be a good option from tax perspective.
- Work through a joint venture or other arrangement.
If the expected volume of sales is smaller, or if the product does not require heavy support in terms of warranty and repairs, then this is a good option. This can be extended to aggregators also already operating in UAE. The investor will then not be responsible for UAE taxes whereas the joint venture or aggregator will take it. However, this can also work on a commission basis where the sales receipt has already been received through credit card in a foreign country and the local partner is paid a commission plus clearing. However, the local commission and clearing with be substantial.
- Have only internet based storage and use delivery models i.e importer of record and 3 PL or 4 PL. This model is in fact an extension of model “b” but differs in the rate of commission and type of service that may be offered by 3PL or 4PL. UAE has a number of third-party logistics providers. Using this model will still attract taxes as the earnings are from UAE but the incidence of tax will be shifter to IOR or 4PL who will in turn charge a margin or commission for sales. There may be implication on product type as unsold inventory will be the responsibility of the investor.
We at ASK Management Consultants can help in streamlining your expansion strategy and provide support services including book keeping and taxation. Please contact us at aamer@ask-management-consultants.com